Budget FY2026–27: Domestic savings decline spurs call for targeted mobilisation plan: PIDE

ISLAMABAD: Pakistan’s gross domestic savings rate has fallen from 17.4 percent of GDP in 1992 to 6.4 percent in 2024, increasing dependence on foreign savings, and the Finance Bill FY2026–27 should introduce a targeted National Savings Mobilization Package built around capped tax incentives, approved long-term instruments, digital and Islamic savings products, pension reform, and credible real returns.

This was stated by the Pakistan Institute of Development Economics in its report authored by Shahzada M Naeem Nawaz and Wajid Islam. According to the report, Pakistan’s budget strategy has traditionally relied on taxation and borrowing. However, it does not emphasize a durable financing framework, which requires mobilizing domestic savings, redirecting informal savings into formal instruments, and reducing public-sector dissaving. As a result, a larger share of investment must be financed from domestic resources.

The key policy messages in the report are treat domestic savings as a macro-fiscal priority, not merely a household behaviour issue; use the FY2026-27 Finance Bill as the entry point for a targeted National Savings Mobilisation Package; restore and redesign savings-related tax incentives for approved long-term formal instruments, with caps and minimum holding periods; protect small and vulnerable savers; targeted concessions may be introduced for pensioners, widows; shuhada families, women, and first-time savers; expand digital, Islamic, pension, and protection-linked savings products. The report was of the view that these will redirect informal savings from cash, gold, and property into regulated channels.

Reduce public-sector dissaving and crowding out. It will help mobilize savings to finance productive investment rather than recurrent fiscal gaps.

Monitor progress annually through a Savings Mobilization Dashboard. It should cover savings rate, formal savings uptake, pension participation, retail Sukuk investment, public savings, and private-sector credit.

The report said that the budget debate is dominated by revenue mobilization, debt servicing, development spending, and subsidy reform. These are legitimate preoccupations. However, they often overshadow a more important aspect of savings, which are too low to finance the economy’s investment needs.

Pakistan’s savings performance reflects long-term structural weakening. Gross domestic savings were relatively higher in the early 1990s. However, it declined very sharply, particularly after the mid-2000s. The 5-year moving average also shows a persistent downward trend, indicating that the challenge is structural rather than a one-year shock.

This policy viewpoint proposes that the upcoming budget should treat savings mobilization as a macro-fiscal priority. A loss of the savings base diminishes the ability to finance investment using its own resources. It highlights the importance of taking appropriate measures beyond revenue and of offering the National Savings Mobilization package. The objective is to move Pakistan from an externally dependent financing model to one in which domestic savings provide a stronger and more stable base for productive investment and sustainable growth.

The report said Gross domestic savings in Pakistan gradually declined from 17.4 percent of GDP in 1992 to 6.4 percent in 2024 (a period average of 10.9 percent), exposing the economy to recurring external financing pressures due to increasing dependence on foreign savings.

During the same period, gross national savings in Bangladesh, India, and Vietnam increased sustainably and averaged 20.7 percent, 28.4 percent, and 30 percent. Differences in income levels among the countries alone are not enough to explain this gap. As such, many countries have experienced similar challenges in the past. Through prudent policy measures, they have been successful in breaking this trap and mobilizing savings. Given this perspective, it is critical to ensure macroeconomic stability, positive return on savings, and depth of financial systems, pension and insurance coverage, sound public finances, and the capacity to absorb household savings through financial instruments.

An economy with persistently low savings has serious consequences, including unsustainable investment levels and higher external financing requirements. Therefore, raising domestic savings should be treated as a top priority to ensure broader growth and macroeconomic resilience.

The country’s low savings rate reflects weak disposable income, high inflation, and consumption. This trend is further exacerbated by the widespread informality of the economy. Citizens don’t trust in formal financial instruments due to their low or negative returns. Also, financial exclusion adversely affects savings. These factors are interdependent on each other. Low real income limits the capacity to save. Inflation reduces the incentive to save, and weak financial access keeps savings outside formal intermediation.

Copyright Business Recorder, 2026